Core views

In terms of VIP boards, the main business, the demand side benefits from global energy consumption policies. The increase in the penetration rate of VIP boards in refrigerators is expected to spawn potential 10 billion market space. In the short term, Europe's new energy efficiency policies were implemented in September 23 and March 24, respectively, and demand for VIP boards grew both in the long term and in the short term. Prices of raw materials and LNG fell in 2023, and the gross margin of the company's main business is expected to continue to recover. The company is also expanding the second vacuum glass track. Vacuum glass has excellent performance and a potential 100 billion market. Relying on leading one-step processes, the technology/cost advantages are remarkable. With the gradual expansion of the 2 million square meter project, it is expected that the second growth curve will take off.

occurrences

The company released its three-quarter report for 2023. In Q3 of 2023, the company achieved revenue of 238 million yuan, or 54.29% year-on-year; net profit of 0.38 million yuan, +105.54% year-on-year.

Brief review

Vacuum insulation board production and sales in the third quarter increased by 105.5% year on year. Vacuum insulation board production and sales are expected to increase in the first three quarters of 2023. The company achieved revenue of 502 million yuan, a year-on-year increase of 28.75%, and net profit of 79 million yuan, a year-on-year increase of 95.26%; of these, the third quarter achieved revenue of 238 million yuan, +54.29% year-on-year, +18.41% year-on-year, and net profit of 38 million yuan, +105.54% year-on-year, +26.67%. As global energy efficiency policies continue to advance, and Europe's new energy efficiency policies were implemented in September '23 and March '24, respectively, and considering the construction of the company's 5 million square meter vacuum insulation board project in Feixi, Hefei, the company's production and sales scale is expected to expand steadily.

Natural gas prices have declined, and gross margin is expected to remain high

The company's Q3 gross margin reached 35.9%, +8.4 pct year-on-year and +2.1 pct month-on-month. Since Q2 2022, the gross margin has been rising.

The company used 9.569,800 cubic meters of natural gas in 2022. On average, 1.49 m3 of natural gas was used per square meter of vacuum insulation board production, equivalent to 1.1 kg. According to data from the National Bureau of Statistics, the average price of domestic liquefied natural gas LNG in 2022 was 6,776 yuan/ton, +37.2% over the same period last year. The average production cost per square meter of vacuum insulation board increased by 2.03 yuan. As international gas prices declined, the average domestic LNG price in October had fallen to 4,534 yuan/ton. Reduced energy consumption costs contributed to the recovery of the company's gross margin. It is expected that next year, as new production capacity is raised and put into operation, transportation and energy consumption costs will be further reduced, and in the future, optimization of new technologies such as ultra-fine cotton, four-edge banding, and nano-barrier films is expected to bring about efficiency improvements and cost reductions. There is still plenty of room for improvement in the company's gross margin.

The vacuum glass project continues to advance, creating a second growth curve

Because of its excellent thermal insulation, energy saving, sound insulation, ultra-thinness, and condensation resistance, vacuum glass is expected to gradually replace insulating glass in the fields of construction, home appliances, transportation, etc., reaching the 100 billion level market. The company has developed vacuum glass products based on vacuum insulation technology, which is expected to form a good customer and technical synergy with the main business. At present, the company has basically completed the construction and installation of the second vacuum glass pilot line. The mass production process will soon be verified, and the construction of the 2 million square meter vacuum glass project will continue to be promoted.

Profit forecasting and valuation: The company's main business benefit policy is driving a boom in demand. Next year's production capacity will expand to meet strong demand, while the vacuum glass business will release mass production next year. Net profit for 2023-2025 is estimated to be 122, 2.34 million yuan and 404 million yuan respectively, corresponding to PE 29X, 15X, and 9X respectively, maintaining the “buy” rating.

Risk warning:

Prices of raw materials fluctuated greatly; downstream demand fell short of expectations; capacity construction fell short of expectations; the international situation fluctuated greatly, etc.